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Do Depositors Discipline Swiss Banks?

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  • Urs Birchler

    () (Swiss National Bank)

  • Andréa M. Maechler

    () (Swiss National Bank)

Abstract

In this paper, we test for the presence of market discipline in the Swiss deposit market. In particular, we examine whether depositors monitor their banks by withdrawing their saving deposits whenever the fundamentals of their bank is no longer satisfactory. We use a panel of bank-specific data an 250 Swiss banks over the period 1987-1998. We find considerable evidence of market discipline, in the sense that depositors are sensitive to bank-specific fundamentals, to institutional differences across bank groups, and to institutional changes in the Swiss depositor protection system. Our study complements the existing literature which predominantly builds on price indicators of market discipline (like yield spreads) by an approach based on quantities (the uninsured share of deposits). As few banks have traded debt outstanding, our approach is applicable to a much larger number of banks, including banks from non-industrialized countries.

Suggested Citation

  • Urs Birchler & Andréa M. Maechler, 2001. "Do Depositors Discipline Swiss Banks?," Working Papers 01.06, Swiss National Bank, Study Center Gerzensee.
  • Handle: RePEc:szg:worpap:0106
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    Citations

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    Cited by:

    1. McIntyre, M.L. & Tripe, David & Zhuang, Xiaojie (Jeff), 2009. "Testing for effective market supervision of New Zealand banks," Journal of Financial Stability, Elsevier, vol. 5(1), pages 25-34, January.
    2. Kathleen McDill & Andrea M. Maechler, 2003. "Dynamic Depositor Discipline in U.S. Banks," IMF Working Papers 03/226, International Monetary Fund.
    3. R. Alton Gilbert & Andrew P. Meyer & Mark D. Vaughan, 2006. "Can feedback from the jumbo CD market improve bank surveillance?," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 135-175.
    4. Edda Zoli & Danyang Xie & Reza Vaez-Zadeh, 2002. "Modis; A Market-Oriented Deposit Insurance Scheme," IMF Working Papers 02/207, International Monetary Fund.
    5. Günther, Susanne, 2014. "Die Vermeidung von Bank Runs und der Erhalt von Marktdisziplin: Das Dilemma der Bankenregulierung?," Arbeitspapiere 142, University of Münster, Institute for Cooperatives.
    6. Ghosh, Saibal & Das, Abhiman, 2006. "Depositor discipline in Indian banking: Separating facts from folklore," MPRA Paper 17427, University Library of Munich, Germany.
    7. Maechler, Andrea M. & McDill, Kathleen M., 2006. "Dynamic depositor discipline in US banks," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1871-1898, July.
    8. Abhiman Das & Saibal Ghosh, 2004. "Market Discipline In The Indian Banking Sector: An Empirical Exploration," Finance 0410020, EconWPA.
    9. Allen Berger & Rima Turk-Ariss, 2015. "Do Depositors Discipline Banks and Did Government Actions During the Recent Crisis Reduce this Discipline? An International Perspective," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(2), pages 103-126, October.
    10. Semenova Maria, 2007. "How depositors discipline banks: the case of Russia," EERC Working Paper Series 07-02e, EERC Research Network, Russia and CIS.
    11. David VanHoose, 2007. "Market Discipline and Supervisory Discretion in Banking: Reinforcing or Conflicting Pillars of Basel II?," NFI Working Papers 2007-WP-06, Indiana State University, Scott College of Business, Networks Financial Institute.

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